Interview with Tommaso Padoa-Schioppa

How come you chose to work for Greece and George Papandreou? What was it that made you accept his invitation?

I felt that the good solution of the Greek problems is crucial not only for Greece but for the EU as well. I also felt that the program that was adopted at the beginning of May, if consistently implemented, provides a real chance to get out of the crisis. I believe in the quality of this program and I wanted to help.

How close is your cooperation with the Greek government? With whom do you mostly communicate and work with?

I am an advisor. I am not working with the structure, I am not doing analysis myself. I am an advisor to two persons: the prime minister and the minister of finance. I talk and work essentially with them. I am close because we have many occasions to be in contact and we have a high degree of agreement on the work that needs to be done.

Some people have criticized the Prime Minister for recruiting many international consultants. Do you feel uncomfortable because of this criticism?

This is very much a European crisis, it’s not an exclusively Greek crisis. Just as the EU has been the key-promoter of the moves to get out of the crisis, so, it’s quite natural that some people from the EU also play a role to help.

Will Greece make it through and how long will it take?

The very difficult situation in which Greece found itself is the effect of many-many years, perhaps even decades of policies, institutions, behaviour through which this difficult situation built up. So, to think that it is possible to move out of it in a matter of few months is a clear illusion. It will take some years. But let me make a distinction. One thing is how much it takes to turn, to change direction and another thing is how long will it take to change the reality. The change in direction has to come at the beginning, and rather quickly. But then, it is necessary to walk on the new directions for a fairly long period in order to reach the goal.

Are we moving in the right direction?

The movement is clearly in the right direction. The process is one in which first a diagnosis of the problems of the Greek economy was necessary, then in which the cure for these ills was to be designed (and this is embodied in the plan that was stipulated with the EU and the IMF), and then, there is the implementation. The first step in the implementation is to adopt the legal acts that permit to change situations (and these were done to a very large extent, the plan was approved, many of the legal instruments were passed in parliament). But, the reality does not change with a change in law. The reality needs to be changed by implementing the new law and the implementation takes time, it’s not a legislative function but an executive, managerial and organizational function and this of course, is where now the test really lies.

Will the revision of the 2009 deficit change the picture and lead to additional measures?

I think the first review last August was a positive but it mainly assessed very preliminary results and the adoption of the legislation. There will be another review in a few weeks. What is essential is to fully meet the requirement of the next review, of the one that will follow, of the third review, the fourth and so on. This is the real test. I think it’s entirely possible to implement the review in full but it doesn’t come automatically.

The biggest problems of the Greek economy are the same which give the name to the EU pact: stability and growth. Stability is to a very large extent a public finance issue and both taxation and expenditure should be brought under stronger control. Growth depends on the entire economy not only on the public sector.

Some argue that the Greek public sector is too big? Is this a problem?

What is sure is that public expenditures have to be brought under control.

What about tax evasion? How can one deal with a problem such as tax-evasion?

The review of August expressed some reserves regarding tax evasion. Clearly, to reabsorb tax-evasion is a long process. I know well the example of Italy. Italy has very large tax evasion. To bring the level of tax-evasion down not to zero but to a low level, again takes several years. It’s a complicated issue.

Some argue that there is lack of measures directed towards growth?

This is the most difficult part. I would not say that no measures have been taken but I would say that a lot of efforts are still necessary.

On debt-restructuring. Is such a development possible and under which conditions?

I don’t think that restructuring is an issue. The confidence of the creditors will come back if the program is implemented and in that case, there will be no need of debt-restructuring.

How do you view the reactions of the markets so far? Are they excessive?

Markets tend always to exaggerate, both optimism and pessimism. They have been much optimistic for too long, they have been pessimistic in the spring, the situation has improved, markets remain nervous, I think that in the end if the action of implementing the program proceeds successfully, markets will be fully convinced. My sense is that the key issue is to implement the program as it was agreed in May and this is the decisive test.

How do you view the EU? Has it stood up to the challenges?

I think 2010 was a very difficult year but the EU has proved the ability to manage the crisis.